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APC TH > Leasing & Letting > Flashcards

Leasing & Letting Flashcards

1
Q

What is the main RICS regulation for leasing property?

A

RICS Professional Standard: Code for Leasing Business Premises 2020

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2
Q

Why was the RICS professional standard Code for leasing business premises introduced?

A

To improve quality/fairness of negotiations and promote new comprehensive HoTs

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3
Q

What are some of the mandatory requirements of the RICS professional standard Code for leasing business premises?

A
  • Negotiations must be constructive & collaborative
  • Unrepresented parties should be recommended being represented
  • Must have terms within HoTs starting its subject to contract
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4
Q

What are the leasing HoTs requirements?

A

o Identity/ extent of the premises
o any special rights (e.g. parking)
o term length, LTA 1954, Renewal/breaks
o guarantor / deposit
o Rent & frequency, exc business rates?
o VAT on the rent?
o Incentives?
o RR (freq & basis)
o Service charges liability
o Rights to assign etc
o repairing obligations
o Permitted use
o Rights to alterations/ reinstatement
o Initial alterations/fit out
o Conditions of lettings e.g. subject to surveys/ PP

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5
Q

What are the important parts of HoTs

A
  • Subject to contract/ conditions
  • Alienations/alterations
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6
Q

What are some requirements regarding deposits?

A
  • Legally documented in rent deposit deed
  • Money held separate
  • Interest given to tenant
  • Agreed terms of release in deed
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7
Q

What should be recommended if there is an unpresented party?

A

Recommend representation

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8
Q

What are some potential leasing issues?

A

Lease length/term certain, Break clauses, Alienation, Repairing obligations, User clauses, RR pattern & basis of Valuation, 1954 Act (s.24-28)

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9
Q

What are some break clause characteristics?

A
  • Mutual or single sided?
  • Notice period?
  • Break penalty?
  • Pre-conditions? (e.g. full payment of rent)
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10
Q

What is the main advantage of pre-lettings?

A

Bespoke building designed to needs

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11
Q

What is the main disadvantage of pre-lettings?

A

Lengthy & complex process, level of risk of developer not performing

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12
Q

What documents must be attached to the Agreement to Lease (for a pre-letting)?

A
  • The Lease - in a pre-agreed form, executed at Practical Completion of the work
  • Licence for Alterations
  • Specification and plans of the proposed scheme
  • Developer’s guarantee/bond (if needed)
  • Warranties - collateral warranties from contractors with any design input
  • Most developers are unwilling or unable to give guarantees for latent defects, and may put decennial insurance in place to cover this risk
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13
Q

What elements influence rental value?

A

Specification, location age, repair, use class, size

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14
Q

What effects marketability of the property?

A

Location, age, specification, terms it’s available on

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15
Q

What are the different interests that can be marketed for a property?

A

New letting, assignment or sublease

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16
Q

What is the difference between an assignment and a sublease?

A

Assignment - The new tenant takes over the entire lease, including the existing tenant’s rights and responsibilities. The original tenant is no longer involved in the lease.
Sublease - The original tenant retains some rights and responsibilities, while the new tenant, or subtenant, takes over part of the lease. The original tenant is still responsible for the property and rent, even if the subtenant doesn’t pay or causes problems

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17
Q

What different techniques have you used to market a property?

A

Brochure (in house or professional), photography, drone, mailing lists, online databases (EGi, Rightmove), boards, agent launch, social media / Linkedin.

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18
Q

What are the prime rents for industrial in Trafford Park?

A

Small Box - £17-£18 (Bridgewater Point)
Mid Box - £13-£14 (Ark42)
Big Box - £10.75 (Trafford 150)

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19
Q

What are the prime rents for industrial in Warrington?

A

Small Box - £13 (Gemini 8)
Mid Box - £11.50 (Evo89)

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20
Q

What are the prime rents for industrial in Speke/Aintree?

A

Small Box - £10

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21
Q

Difference between Trafford Park, Warrington and Aintree/ Speke for industrial locations?

A

TP - close proximity to Manchester CC, mostly at capacity so less new builds
Warrington - benefits from being on M6
Speke - Close proximity to John Lennon Airport
Aintree - on the M57/M58 and close to Liverpool CC

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22
Q

What should you do for a occupier requirement?

A

Agree a fee with the client and signed terms of engagement. Understand the client needs and then issue searches for suitable properties to present to the client for consideration.

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23
Q

What is your fee for agency work?

A

15% of headline rent for joint agency work. 10% is sole agent.
Acquisition: 10% of headline rent.
Abortive fee if you have done searches and viewings but occupier doesn’t sign a lease.

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24
Q

What are some potential requirements of a tenant?

A

Close to amenities, parking, good internet speed, certain amount of office space, yard space

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25
Q

What negotiations take place for agency work?

A

Negotiate on lease term, rent per sq. ft, rental deposit, rental incentive, break clause, rent review mechanism.

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26
Q

What rent free period would you expect on an industrial lease?

A

1 month per year certain

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27
Q

Why increase the headline rent if the rent free period increased?

A

So that net effective rent was not reduced.

28
Q

How do you calculate the net effective rent?

A

Net effective rent is calculated by multiplying gross rent by the length of the lease minus the discounted months you’re given by the property owner. Then, you divide the amount by the length of the lease.

29
Q

What is a break penalty? Why use this?

A

Where a Tenant is required to pay a rental penalty for exercising their break. Used where a tenant is adamant on a reduced term certain but increased rent free. These negatively affect income and asset value of the Landlord’s property.

30
Q

What was included in your marketing brochure?

A

Property address, description including specification, location, photos, floor area, EPC, rating, terms of the lease, rent, Misrepresentation disclaimer, subject to contract, agents contact details.

31
Q

What do you have to consider when instructing for a lettings board to be placed on a building?

A

Planning.

32
Q

Can you act for both the landlord and the prospective tenant?

A

Yes. Whilst conflicts of interest are not best practice, a party interest can be managed. Both parties have to give their informed consent and an information barrier is required. It may be possible to use a joint agent to implement a more robust information barrier.

33
Q

Can you disclose offers to other tenants?

A

Yes – if you have consent of your client and the tenant (and inform all parties)

34
Q

How long do you have to confirm offers in writing to your client?

A

1 day (2 in exceptional circumstances)

35
Q

If your company’s covenant is weak, what else might you do to secure the letting?

A

Guarantor, rental deposit, profits test.

36
Q

Can a tenant assign a lease to its guarantor?

A

No – this would be void under EMI ruling.

37
Q

What happens if there is no alienation clause in a lease?

A

Where a lease is silent on alienation, it is assumed that the Tenant can assign without any restrictions.

38
Q

What is alienation?

A

Leases can have absolute (not allowed), open (allowing) or restrictive (subject to conditions) alienation clauses relating to whether a Tenant can assign or sublet the property.

39
Q

What is subletting and assignment?

A

Upon assignment, the new tenant (T2) has a direct relationship (privity of contract) with the landlord.
When subletting, the new subtenant (T2) has a direct relationship with T1 and pays them the rent.

40
Q

Explain your understanding of the Landlord and Tenants Covenant Act 1995

A

Introduced AGAs and abolished privity of contract

41
Q

What is an AGA?

A

An agreement between the outgoing tenant and the landlord that ensures the new tenant/assignee will perform their lease obligations, acting as a gurantor. If assignee fails to perform, LL can pursue outgoing tenant

42
Q

What is the current business rates multiplier?

A

54.6p for standard businesses and 49.9p for small businesses.

43
Q

What factors affect the local and national lettings market?

A

Local - accessibility, road frontage / prominence, price
National - market presence or drive time within 4 hours

44
Q

What is an agreement for lease?

A

As agreement for lease is a binding agreement between a landlord and prospective tenant to grant or accept a lease in the future. It agrees the requirements of each party which are later documented in the lease. A common example would be for when a building is not complete yet, as leases are usually dated at the time that the tenant takes entry of the property.

45
Q

Tell me the requirements surrounding letting a property and an EPC?

A

To let a property, it must have a minimum EPC rating of E in accordance with the MEES 2015.

46
Q

Where does the EPC have to be shown?

A

EPC rating should be included in the brochure. For a public building over 250 sq. m. a Display Energy certificate is required.

47
Q

What are service charges?

A

additional charges to the tenant of multi-tenanted properties or estates where the Landlord incurs costs to maintain and manage the property

48
Q

How does a requirement being confidential affect the process?

A

Can affect negotiating power, for example if you are representing a large national or international occupier then landlords would be more obliging to grant you leases with longer rent free

49
Q

Where is a deposit held?

A

Deposit is to be held in a separate account and to be clearly labelled.

50
Q

How do you market an assignment?

A

The same way as an open market letting however it should be advertised on the brochure. An assignment will be to the same terms of the lease and therefore you should RTL first.

51
Q

What do you have to check for the Tenant / subtenant when granting them a lease?

A

Covenant strength, that they can afford to pay the rent, AML check if the rent is over 10,000 euros per calendar month.

52
Q

What’s the difference between a lease and a licence?

A

Exclusive possession.
Leases give tenants exclusive possession of a property for the entire term
Licence give a personal right to occupy which cannot be assigned and can be revoked at any time

53
Q

What other costs does a prospective tenant need to consider other than rent?

A

Service charge, VAT, insurance rent.

54
Q

How do you determine the sufficient amount for a rent deposit?

A

3-6 months’ rent.

55
Q

If a Tenant was about to vacate a property and you had not secured a new tenant for your client yet, what would you advise them?

A

To apply for empty business rates. For commercial properties this is 3 months’ relief and 6 months’ for industrial properties.

56
Q

Are there any other exemptions from business rates?

A

Currently, Retail, Hospitality and Leisure rates relief of up to 75%
A listed building, doesn’t pay business rates if it is empty but once occupied, it will.

57
Q

What guarantors types are there?

A

Bank - a promise from a bank to take on the liability of a debtor
Parent - a commitment from a third party to pay if the client doesn’t

58
Q

What are some exemptions to being contracted inside the L&T Act 1954?

A
  • Personal occupation
  • Redevelopment (concrete plans)
  • Failing to pay rent
  • Breached covenants of lease
59
Q

What may be required if you get rid of a tenant who’s inside the Act?

A

Compensation Payment - based upon rateable value (dependent on how long they were a tenant)

60
Q

What could be an alternative fee structure?

A

Other than the standard % of the annual rent, you could have a fee on an incentivised basis, offering bonuses for finding a tenant within a certain time frame etc

61
Q

What should you do if you are acting for an operator requirement?

A
  • Follow the RoC and reputable behaviour
  • Representing CBRE and the RICS
62
Q

Would receiving gifts at a launch be seen as bribing?

A

No - given out on a blanket basis and proportionate

63
Q

What does contracting outside the Act mean?

A

The tenant has no statutory right to stay within the Property on lease expiry

64
Q

Which section of the L&T Act sets out the procedure to contract outside the Act?

A

S.38A

65
Q

What is the procedure undertaken for the LTA?

A
  • LL serve notice
  • T must make declaration to confirm terms
  • Must be completed before lease is signed
66
Q

What are the relevant sections of the LTA 1954 for lease renewals inside the Act?

A

S.24-28

APC TH (15 decks)

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